HIGHLAND PARK, Texas — Editor's note: This article was originally published in the Dallas Business Journal here.
A company affiliated with prominent developer Stillwater Capital filed for Chapter 7 bankruptcy at the tail end of a lawsuit over alleged construction defects at a high-end condo complex on the south end of Highland Park.
The bankruptcy was filed Jan. 11 in U.S. Bankruptcy Court for the Northern District of Texas by Stillwater Abbott Development LLC, an affiliate of Dallas-based Stillwater Capital Investments LLC. Stillwater Capital founding partner Robert Elliott refers to Stillwater Abbott as a single-purpose entity formed to build the 38-home Mondara condominium complex along Abbott Avenue.
Stillwater Capital has built apartment, condo and townhome properties as well as industrial and mixed-use developments throughout the Dallas-Fort Worth area, and its homebuilding arm, Robert Elliott Custom Homes, has built hundreds of homes around Highland Park and University Park.
The firm was also a partner in the development of the new PGA of America campus and resort in Frisco and is building its own 240-acre The Link development on nearby property.
Stillwater Abbott sold out of the Mondara project in 2017, so that entity no longer had further business activity, Elliott told the Dallas Business Journal in an email.
"This filing has no bearing effect on Stillwater Capital Investments or its ongoing operations," Elliott said.
A legal decision on the homeowners association's suit has been made by a local jury, but because the jury came to a verdict following the bankruptcy filing, the situation remains unsettled in federal bankruptcy court.
Condo association alleges construction defects
Mondara Condominiums Association Inc. sued Stillwater Capital and affiliates in June 2020 in state district court in Dallas County, claiming that poor construction work caused leaks, water damage, cracked walls and other damage and defects in common areas and individual units.
The condo association said Stillwater misrepresented the quality of the condos — some priced in the millions — to buyers and did not disclose the alleged issues.
The association also claimed Stillwater failed to obtain insurance and warranty documents from subcontractors, leaving the association and condo owners with little information or resources to address the defects.
It also said Stillwater officials transferred assets out of its development arm to other entities, reducing the funds available for construction of the Mondara.
The homeowners association has alleged more than $10 million in damages, according to one of its attorneys, Michael Rochelle of Rochelle McCullough LLP, according to a court transcript.
Stillwater has denied the claims. In court filings, Stillwater has argued that the condo association misused or failed to properly maintain the property and that at least some of its claims are barred by statutes of limitations.
Federal judge says state court illegally continued case
Stillwater Abbott Development filed bankruptcy in an attempt to pause the lawsuit — someone on the legal team was experiencing health issues and a previously requested pause had been refused, Elliott told DBJ.
On Jan. 11, despite the bankruptcy filing earlier in the day, a jury in state court decided that Stillwater Abbott’s negligence caused the defective condition of the common areas at Mondara and that the company willfully or intentionally failed to perform work at the condo complex in a "good and workmanlike manner," according to the transcript.
Jury members also determined that Stillwater Abbott as well as Stillwater Capital, Stillwater Management, Elliott and Stillwater partner Aaron Sherman engaged in false, misleading or deceptive acts or practices that caused the damages.
However, U.S. Bankruptcy Judge Michelle Larson for the Northern District of Texas in a separate status conference the next day said the state district court, by moving forward with the case despite the Chapter 7 filing, ignored the automatic stay in federal law that prevents actions against debtor when a bankruptcy is filed.
“I won't bury the lede here. I am shocked. Dismayed. I don't know what else to say," Larson said in the meeting, according to court transcripts. "There is an obvious and overt violation of the automatic stay. Automatic means automatic.”
The condo association's attorneys asked to lift the stay and let the case play out in state court. The judge declined to do that, as she said it would essentially rubber-stamp the state court's action.
“You cannot continue an action or proceeding against a debtor that was commenced before the commencement of the case once a bankruptcy petition is filed. It's hornbook," Larson said. "It may be unfortunate to a plaintiff that's been in the midst of litigation for over three years, but it is the law.”
Elliott said he's waiting on a federal hearing in the near future to determine next steps.
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